Olim who haven't served in army won't get 0 VAT benefit

Bill seeks to lop off the 18% value-added tax on new apartment purchases from eligible young couples; Lapid says debate on law has become "circus."

Finance Minister Yair Lapid..
(photo credit:REUTERS)

For the second day in a row, the Knesset Finance Committee erupted in chaos over discussions on Finance Minister Yair Lapid’s zero-VAT housing plan. On Thursday, it was clarified that new immigrants, many of whom do not serve because they were older than the draft cut-off of 26 when they made aliya, would also be excluded from it.

“The conversation underlying the law in recent weeks has become a circus, and instead of dealing with the substantive issues, we’re dealing with gimmicks,” Lapid told the Knesset plenum.

The zero-VAT bill, which has been derided by the Bank of Israel, real estate professionals, and the Finance Ministry’s own professional staff as an ineffective measure to lower the cost of housing, would lop off the 18% value- added tax on new apartment purchases from eligible young couples.

Though the discount would give eligible couples a relative price advantage over the rest of the population, economists predict that the flood of new buyers would raise the price for everyone else. As the prices rise, the contractors selling the houses would end up getting a significant chunk of benefit, leaving even the people with the VAT discount with little to no advantage.

“Every day, another economist gets up and says how bad this law is,” said MK Moshe Gafni (United Torah Judaism), a finance committee member.

Lapid has rebuffed criticism by saying that the policy was not in place to please economists.

“The zero-VAT law is not the end, but only the means,” Lapid said. “It is a means through which we want to give young couples from the middle class, those who are burdened, and fought in Gaza in the last operation, the option to buy an apartment in Israel.”

Among the most controversial elements of the bill is a stipulation that only couples who have served in the army or national service are eligible.

As a result, most ultra-Orthodox and Arab citizens will not be able to enjoy the benefit.

Gafni noted that under more inclusive guidelines, the bill could help the ultra-Orthodox buy apartments, but, “with all due respect to the haredim, there is still a country here, and you can’t do something that at the end of the process will cause serious damage to the economy.”

In addition to charges of ineffectiveness and discrimination, the bill also faces opposition for budgetary reasons.

At a cost of roughly NIS 3 billion a year, the policy is forcing concessions from other key areas in the budget, meaning some combination of spending cuts from education, welfare and health or an increase in the deficit, which Bank of Israel Gov. Karnit Flug said could harm Israel’s economy.

As a comparison point, the government approved a 2% across-the-board spending cut from the 2014 budget (with the exception of defense) to help pay for Operation Protective Edge. That amounted to NIS 1.9b., less than two-thirds the cost of the zero-VAT bill.

Another option to fund the bill would be to raise taxes, but Lapid has vowed not to do so, and on Wednesday said he would not sit in a government that raises taxes. Lapid is set to present the budget to the government next Thursday.

On Wednesday, a group of residents from the South stormed the committee meeting, demanding that their war compensation be discussed first. Though the government has approved a five-year, NIS 1.5b. plan to invest in the South following Operation Protective Edge, it has not yet been sent to the committee for approval.

Labor MK Stav Shaffir said the 0-VAT money was being wasted on a “populist law designed to increase Yesh Atid’s mandates, and all the economists oppose it.

Wouldn’t it be preferable to take that same money and transfer it immediately to the plan to rehabilitate the South?” The Knesset Finance Committee has struggled to pass the embattled policy in the face of fierce opposition from Arab, ultra-Orthodox, and left-wing parties. In the summer session, the opposition managed to weigh the bill down with 2,000 reservations, delaying its approval and obviating the September deadline Lapid had set for getting the policy up and running.

The committee is scheduled to take the law up again on Tuesday and Wednesday of next week, and is set to continue debating it through the Knesset’s recess until all the reservations are addressed, which would pave the way for final passage at the start of the next Knesset session in October.

Lahav Harkov contributed to this report.

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